MSMED amendment bill could be an ‘IBC moment’ for small enterprises: Report | Economy & Policy News

The new legislation on MSME is expected to help improve payment discipline among buyers of goods and services sold by small businesses, and could bring in an ‘IBC moment’ for enterprises facing delayed payments, a report said on Monday.

It could become an ‘IBC (Insolvency and Bankruptcy Code) moment’ for delayed payments by improving payment discipline among buyers and unlocking working capital for small businesses, said the report by an arm of rating agency Crisil.

The bankruptcy law (IBC) has helped banks to get rid of bad loans by putting borrowers at the risk of losing control over their companies in case of a default.

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, which has been passed by the Parliament this month, provides for a time-bound resolution of payment disputes and stronger enforcement of awards.

These measures could change buyer behaviour in a manner similar to the impact of the Insolvency and Bankruptcy Code (IBC) on credit discipline, the report said.

The scale of the delayed-payment problem is significant. As of August 14, micro and small enterprises had filed 2,56,892 applications involving delayed payments worth Rs 55,244 crore on the MSME Samadhaan portal, of which claims amounting to Rs 20,979 crore remain pending, according to the Crisil Intelligence report.

Around 40,580 applications, or 16 per cent, have remained unresolved for over a year, leading to a large working capital getting locked in.

“By introducing time-bound dispute resolution for individual stages, strengthening the enforceability of awards and enhancing the role of facilitation councils, the bill can improve payment discipline and unlock working capital across the MSME sector.

“Much like the IBC improved credit discipline, this framework has the potential to create a stronger culture of timely payments. Its success, however, will depend on effective implementation and institutional capacity,” said Pushan Sharma, director at Crisil Intelligence.

Under the amended framework, mediation will have to conclude within 90 days from the date fixed for first appearance. If mediation fails, disputes must be referred to arbitration within 30 days, with awards to be issued within 90 days of completion of pleadings.

The bill also proposes that buyers challenging MSEFC awards deposit 75 per cent of the award amount. At least 50 per cent of the deposited amount can be released to the MSME if proceedings remain pending for more than six months.

These provisions could provide MSMEs greater leverage against defaulting buyers and discourage frivolous challenges, the report said.

According to MSME Samadhaan data, Karnataka’s 35 MSEFCs handle an average of 397 applications each, compared with 1,767 for Rajasthan’s nine councils and 1,095 for Uttar Pradesh’s 19 councils.

Recognising such disparities, the amendment gives states greater flexibility to constitute additional councils, the report said.

The bill can improve payment discipline, reduce uncertainty around recoveries and unlock much-needed working capital for MSMEs. If supported by adequate staffing, strict adherence to timelines, effective enforcement and stronger digital monitoring, it has the potential to become a landmark reform in India’s MSME ecosystem, much as the IBC did for distressed-asset resolution, it added.